Muslim Canadian Congress asks CMHC to drop Islamic banking study

4 hours ago

TORONTO – The Canada Mortgage and Housing Corp. is being urged by a moderate Muslim organization to abandon the idea of a study on Islamic banking because such a system could leave many Muslims isolated.

The Muslim Canadian Congress, in a letter to CMHC, said the concept is “an attempt by Islamists, with backing from Middle Eastern Financial Institutions and their Western partners, to scare Muslim Canadians into believing that they should pay more to the banks and demand less in return as an act of religiosity.”

The congress, which claims to represent Muslim moderates across Canada, says conservative imams are warning Muslims not to deal with conventional banks and accuses the clerics of being paid to “herd” Muslims toward a system it says is based on lies and deception.

“The most conservative among the Muslims think the Qur’an prohibits interest. We think that’s the wrong interpretation,” said Farzana Hassan, president of the Muslim Canadian Congress.

The Qur’an, she said, “doesn’t even talk about (interest.) In fact what it does talk about is usury and the two are completely different.”

The CMHC, a Crown corporation that underwrites mortgages, has issued a tender call for a research project on the issue to determine the role that Shariah-compliant mortgages could play in Canada and to what extent Canadians are staying out of the housing market because of their religious observances.

Doug Stewart, vice-president of policy and planning for CMHC, said his organization is not trying to promote Islamic banking products by implementing the study.

“We want to better understand how this type of lending works,” Stewart said.

“We know it has developed in the Europe and the United States. We understand that there may be some of this type of lending going on in Canada, and (want to know) what some of the implications are.”

Stewart said the $100,000 study, which is still in the early stages, is very much a baseline kind of project.

“We don’t have any intention to introduce mortgage insurance, or change any of our practices with respect to Shariah lending.”

He also said this type of lending would have to be offered by an approved lender. At this point, “we don’t know if there’s any market… for this type of lending.”

Islamic financing is based on the principle that no interest is charged – a Muslim depositing money at a bank would receive no interest for their deposits, nor would they pay interest on a loan.

Instead, a financial institution might buy a house or car from the seller, then lease or rent it to the consumer with additional fees charged to pay for the financing.

Walied Soliman, a lawyer with Ogilvy Renault, which offers a broad range of business law services, said Islamic finance in Canada should not be viewed as a threat.

At heart, he said, it is a structured product that banks are creating to meet consumer demand. And at the retail level, “there’s a strong demand” in Canada.

“That’s why financial institutions are hiring lawyers, accountants and others to look at how it is that these products can be structured to adhere to the personal beliefs of retail level individuals,” he said

They are also exploring at the institutional level how to offer more complex structured products and financing products for institutions that are also driven by these beliefs.

At least two groups provide mortgages under a Islamic finance system, UM Financial and Islamic Co-operative Housing Corp. Ltd., both in the Toronto area.

UM Financial currently holds about 500 mortgages valued at about $120 million on its books through a financing arrangement with the Credit Union of Central Ontario.

Such financings can be exploitative, Hassan said, because “they are still charging the same amount, perhaps more, but calling it something else. This is not really fulfilling a religious requirement. It is cheating it.”

That could also act as a deterrent for Muslims to buy property, she added.

Hassan said the introduction of such banking could lead to Canada’s 800,000 to one million Muslims becoming more segregated and isolated from their fellow Canadians.

The congress says it would like to see a better deal from banks for all Canadians, instead of dividing people into religious groups.

“We have quite a lot of clout with the Muslims who do want reform and change …. They don’t believe that if they went through the regular bank lending services that they would be committing a sin.”

“We fear that this will lead to greater isolation of Muslims, greater economic marginalization… which is why we think this sort of thing needs to be exposed.”